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Pai's FCC Makes Access Regs Flip-Flop

Mari Silbey
3/31/2017

There's a new Chairman in town, and he's got a big agenda for the FCC.

Dubbing April "Infrastructure Month" at the Federal Communications Commission (FCC) , Chairman Ajit Pai has packed the agency's schedule with new items for consideration pertaining to how broadband deployments are regulated. Among those items is a draft Report and Order on Business Data Services (BDS), also known as special access. BDS covers service-guaranteed Internet connections sold to support businesses, carrier backhaul and point-of-sales systems like ATMs and credit card machines. It also covers the wholesale connectivity market where telecom companies sell access to their infrastructure to other service providers who can then package and market those connections to additional retail customers.

The new BDS order posits that the business data services market has outgrown the old regulatory regime governing it. According to a fact sheet currently in circulation, the FCC declares that "we at long last recognize the intense competition present in this market and adjust our regulatory structure accordingly." The FCC's proposal calls for an end to tariffs and other "legacy pricing regulations," and specifically notes the impact that new cable entrants have had on business service pricing and availability.

The analysis is almost the exact opposition of conclusions reached by the FCC under Chairman Tom Wheeler in 2016.

Chairman Wheeler also wanted to pass BDS reform, but the rules he proposed were based on an analysis that showed competition in the market hasn't advanced far enough. Those rules called for new regulations that would have worked to set wholesale prices based on the cost of retail services in areas deemed uncompetitive. Importantly, the order also called for applying the new rules without regard to technology, meaning that cable operators would have faced the potential for price regulation in the BDS market for the first time. (See FCC Prepares to Vote on Price Regulation.)

The disconnect between Chairman Pai's findings and Chairman Wheeler's conclusions comes down to how they define market competition. Wheeler's report cites the damning statistic that 73% of special access locations are served by only one incumbent telecom provider, with no other facilities-based supplier present.

Pai's fact sheet, on the other hand, argues that competition can't be determined simply based on whether a competitive provider is present in a specific building. The analysis also has to take into account whether other service providers are present nearby and therefore have an impact on pricing because of the ease with which they can extend their networks a short distance. Pai's analysis also contends that many businesses are happy with best-effort Internet service, and therefore best-effort services -- which sometimes offer higher, though non-guaranteed bandwidth -- have to be considered as part of the competitive landscape.


For more fixed broadband market coverage and insights, check out our dedicated Gigabit/Broadband content channel here on Light Reading.


Unsurprisingly, because of the recent change in FCC leadership, Pai's view of the BDS market now holds sway. And when a new regulatory structure based on that view is voted on by the full Commission (currently two Republicans, one Democrat), it is sure to pass.

The winners under Chairman Pai's proposal include incumbent telecom providers and cable operators, who will now arguably have greater flexibility in setting BDS prices. The losers include non-incumbent providers who in theory now face greater barriers to entry in the BDS market.

How big are those potential barriers? According to Chip Pickering, CEO of Incompas , the trade association representing non-incumbent providers, "This is a competition killer pure and simple."

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

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kq4ym
kq4ym
4/14/2017 | 11:15:54 AM
Re: Ratemaking
It's of course revealing just how things can change in one year. Chairman Wheeler vs Pai are coming at regulations and consumer vs. business protection/regulation from entirely different philosophies if not political agendas. It shall be interesting to see where this goes.
Duh!
Duh!
4/5/2017 | 3:43:18 PM
Re: Pretzel Logic
First, my comment above was intended for another article. Topic drift unintentional.

My point was to illuminate a fallacy upon which Pai builds his policy argument. The comment was deliberately crafted so as to discuss policy, not personality.  DC is full of people from humble backgrounds who forgot where they came from. DC is also full of people who mouth pieties, but make policy apposite to their words.

Coincidentally, Scott Cleland and Gigi Sohn were on the teevee last night debating the now-revoked privacy rules. Interestingly that they argued explicitly over just this point.
Joe Stanganelli
Joe Stanganelli
4/5/2017 | 2:45:20 PM
Re: Pretzel Logic
Given Pai's humble roots and how outspoken he has been about the issue of access because of his upbringing in rural Kansas, I think this assessment sells him short.  (Reasonable minds can certainly disagree on policy approaches in general, however.)
Joe Stanganelli
Joe Stanganelli
4/5/2017 | 2:43:29 PM
Re: Pretzel Logic
@brooks7: Indeed, this gets into the "vendor lock-in" issue (which, incidentally, I just wrote a piece about for Light Reading's Telco Transformation -- so stay tuned!).

And given the choice between the hard and forceful hand of regulation and legisation versus evangelizing open source and virtualization so as to avoid or mitigate the issues you point out, I think the better option is clear.
Joe Stanganelli
Joe Stanganelli
4/5/2017 | 2:40:46 PM
Re: Ratemaking
> Many states would be overwhelmed trying to regulate these advanced markets.

Speaking as someone who worked briefly for the Nevada AG's office and has many colleagues there and at other state agencies across the US, from my perspective, states already do regulate advanced utility markets -- relatively effectively, IMHO.

The real problem with state and local utility ratemaking is that the quid pro quo is that you legitimize a genuine monopoly or oligopoly.  So that has to be weighed against the factors of the existing market.
brooks7
brooks7
4/3/2017 | 4:44:56 PM
Re: Pretzel Logic
I think this whole thing points out the whole problem that we have with regulating access.   The whole thing is convoluted and a real mess.  For example, Data Centers have essentially no problem with competition.  They get plenty of bandwidth from plenty of providers.

Once fiber is laid into an building, it makes it very tough to justify building over it.  By the time competition arrives, the businesses inside have signed deals.  They are on multi-year contracts and unless something special happens they won't switch even then.  That means there is little incentive to build multiple networks in any area except for the densest enterprise areas. 

Then there is the opportunity for wholesale.  The problem with that is that retailing, wholesale fiber is a low margin business.  Unless you can bundle lots of services on top of it, there is no money to be made there.

The problem is that if you are an incumbent why should you spend your construction dollars to build out networks that the FCC is going to make you give away. 

I don't think there is a very good regulatory answer for this in the paradigm we are trying to use today.  This is a case where I would see Structural Separation as the best answer for the customers.

seven

 

 
Duh!
Duh!
4/3/2017 | 1:42:56 PM
Pretzel Logic
Short of dissecting his motivations, the root of the problem with Pai: he denies that local access and "edge provider" are distinct vertical markets with different roles in the food chain and different degrees of competitive discipline. All his arguments stem from a belief that that since advertising is a competitive market, then access must be as well  and therefore the magic hand of the market will correct all distortions. Contrary evidence notwithstanding.

 
danielcawrey
danielcawrey
4/2/2017 | 11:20:57 AM
Re: Ratemaking
I think this is going to continue to be at the federal level. Many states would be overwhelmed trying to regulate these advanced markets. 

We're seeing a new day at the FCC. It's obvious the regulatory body is going to continue to favor business over consumers. 
Joe Stanganelli
Joe Stanganelli
3/31/2017 | 9:11:46 PM
Ratemaking
Personally, I think that if you're going to have price regulation/ratemaking in this sector, it needs to happen at the state level.  Otherwise, if the federal government gets their hands on this power and preempts the states accordingly (as it is with utilities), I think competition will actually suffer and there will be less of an understanding at the ratemaking level of what local and regional considerations are.
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